Knowles' Precision Devices Surge Lifts Full-Year Outlook

Precision Devices Carries the Quarter

Knowles Corporation (KN) delivered a standout second quarter, with revenue of $167 million, up 14% year-over-year, handily beating the high end of its guided range. The Precision Devices (PD) segment was the engine, growing 25% to $98 million, driven by broad-based demand across medtech, defense, industrial, and electrification. Book-to-bill in PD hit 1.4, the seventh consecutive quarter above 1.0, and orders reached nearly $140 million—up from roughly $100 million in Q1. As CEO Jeffrey Niew put it: “Orders in the PD segment were nearly $140 million in Q2, well above Q1 bookings and providing me confidence in continued growth in the future.” — Jeffrey Niew, President and CEO · 2026-07-23 The strength is not a one-off: “Book-to-bill in Precision Devices was 1.4. This marked the seventh consecutive quarter with a book-to-bill greater than 1.” — Jeffrey Niew, President and CEO · 2026-07-23

The company also raised its full-year revenue growth guide to 10-12%, well above the 4-6% organic target set at the 2025 Investor Day. Jeff noted, “We now expect our revenue growth in 2026 to be between 10% and 12%.” — Jeffrey Niew, President and CEO · 2026-07-23 This acceleration is rooted in a secular growth trend across its core markets, but particularly in a defense market that is evolving faster than anticipated.

Defense Orders Give Visibility

Defense was a major theme on the call, with management highlighting robust RF filter and capacitor demand for electronic warfare, radar, and communications. The company is increasingly a sole source supplier on key programs, and the order pipeline is extending into multiyear commitments. In early July, Knowles received a $15 million-plus order for a radar application to be delivered over 36 months starting in 2027. This is a clear sign of customers seeking to secure capacity as global defense budgets expand—a trend that Jeff says has three drivers: a larger U.S. defense budget, replenishment of stocks tied to the electronic warfare focus, and allied demand. He elaborated:

I would say there's 3 things that I see that are going to drive an accelerated growth in defense... the White House is proposing a larger defense budget significantly... you've got the issue of replacement of stocks... and then lastly, you've got a big push by the United States to increase defense spending in our allies.

This is a meaningful shift from prior quarters, where defense was mentioned as a positive but not with this level of conviction. In the April 2026 call, Jeff hinted at the trajectory: “Defense, I would characterize just briefly—orders are up... we think in defense there is strength in 2026 that is probably stronger than we expected, and 2027 looks to be shaping up to be even better.” — Jeffrey Niew, President and CEO · 2026-04-23 The new multiyear orders and sole-source positions give management high visibility into 2027 and beyond.

Margins, Capacity, and the Path Forward

Margin expansion is also on track. PD segment gross margins improved 140 basis points year-over-year to 40.1%, driven by higher factory utilization and pricing. Management expects further improvement in the back half, with PD margins entering the low 40% range. Total Revenue in Q1 2026 was $153M, up 16% YoY, and Q2 2026 came in at $167M, confirming a strong upward trajectory. The energy order—a $25 million-plus program that ramped fully in Q2—is a key contributor to both growth and margin, though the company now downplays its singularity. As Jeff noted on the February call: “We expect this to be in the neighborhood of $25 million, north of $25 million revenue this year.” — Jeffrey Niew, President and CEO · 2026-02-05 The energy order remains a highlight, but the growth story is now much broader.

The debate now is whether this is a cyclical peak or a durable expansion. Book-to-bill of 1.4, coupled with multiyear defense orders and design wins in industrial and medtech, suggests sustainability. Management is investing in capacity (CapEx expected ~5% of revenue) and plans to reach EBITDA margins near 30% over the next 2-3 years, up from an expected 25%+ this year. The balance sheet is flexible, with net leverage of 0.5x and ample liquidity, supporting both buybacks and selective M&A. As Jeff said, “We're being very selective in M&A... we've looked at a lot of stuff.” — Jeffrey Niew, President and CEO · 2026-07-23

Knowles' story is one of a component maker that has repositioned itself into high-growth niches—defense, medtech, and industrial electrification—just as global spending on these areas accelerates. The stock has pulled back about 22% from its June peak, but the fundamentals have never been stronger. If bookings sustain, this could be the beginning of a multi-year earnings expansion.